May 16, 2021

Trade Deficit and Consumer Sentiment Rise

A separate survey released on Friday showed that consumer sentiment hit an eight-month high in early January as Americans grew more optimistic about job prospects.

The Thomson Reuters/University of Michigan preliminary January reading on its overall index of consumer sentiment rose to 74 from 69.9 in December for the fifth month of gains and the highest level since May 2011.

The report topped expectations of 71.5 and contrasted with December’s weaker-than-expected retail sales reported on Thursday.

“This shows even though the retail sales number this week was disappointing, there could be a little more underlying strength,” said Kathy Lien, director of research at GFT Forex in Jersey City. “I’d be wary of looking at this as a shift in long-term confidence, but I’d look at this as good news today.”

Commerce Department data showed that the trade gap was $47.8 billion in November, exceeding analysts’ forecast of a $45 billion deficit.

“The trade balance deteriorated pretty significantly, and it could shave a few tenths of a percent off our expectation for fourth quarter,” said Russell Price, senior economist at Ameriprise Financial.

JPMorgan Chase said gross domestic product growth for the fourth quarter was now tracking closer to 3 percent than the company’s forecast of 3.5 percent.

A wider deficit shows that more goods and services bought by American businesses and consumers were produced outside the country, subtracting from gross domestic product.

“The external outlook does not bode well for U.S. exports, as a deceleration in global growth will coincide with a stronger U.S. dollar due to lingering financial concerns regarding Europe’s sovereign debt turbulences,” wrote Martin Schwerdtfeger, a senior economist at the TD Bank Group, in a note.

A dip in import prices showed that inflation pressures were still muted, giving the Federal Reserve wiggle room as it holds benchmark interest rates at ultralow levels.

Import prices were down 0.1 percent in December after a 0.8 percent gain in November as oil prices fell, in line with economists’ expectations.

Economic growth in the final quarter of 2011 is likely to have accelerated from the third quarter’s 1.8 percent rate, with many economists expecting an annualized rise of around 3 percent.

Consumer spending, once a crucial pillar of the economy, remains lackluster and sensitive to shocks.

Although some Federal Reserve officials have said further steps may be needed to stimulate the economy, no action is expected at the next Fed policy meeting at the end of the month.

Thirty-four percent of consumers polled in the confidence survey said they had heard of recent job gains, a record high in the survey’s history and well above the 21 percent recorded in December.

“The data suggest a stronger consumer spending outlook, rising to about a 2.1 percent gain in 2012,” Richard Curtin, the survey director, said in a statement.

But consumers still lacked confidence in government economic policies, with the majority rating them unfavorably for the sixth consecutive month.

Americans also remained dour on their personal finances, with just 24 percent expecting their finances to improve in January, compared with 25 percent last month.

The survey’s barometer of current economic conditions rose to the highest level since February at 82.6, from 79.6, while its gauge of consumer expectations rose to 68.4 from 63.6.

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Stocks & Bonds: Shares Rise on Optimistic Outlook

Merck Company and DuPont led gains in the Dow Jones industrial average. Charles Schwab, the brokerage firm, rallied 2.1 percent as earnings and sales exceeded analysts’ estimates. Google fell 8.3 percent, the most since 2008, after earnings fell short of projections. Bank of America fell 2.4 percent as executives said profitability from lending might come under pressure.

The Standard Poor’s 500-stock index rose 5.16 points, or 0.39 percent, to 1,319.68, trimming its weekly loss to 0.6 percent. The Dow Jones industrial average rose 56.68 points, or 0.46 percent, to 12,341.83. The Nasdaq composite index was up 4.43 points, or 0.16 percent, to 2,764.65.

“The economy continues to expand and the recovery is sustaining,” said Russ Koesterich, the head of investment strategy for scientific active equities at BlackRock in San Francisco. “It’s not going to be a bad earnings season. It’s just that a lot of the good news is already baked in. It’s going to be a choppy market with an upward bias.”

Stocks turned higher after the Thomson Reuters/University of Michigan preliminary index of consumer sentiment rose to 69.6, higher than forecast, from March’s 67.5 reading, which was the lowest since November 2009. The gauge was projected to rise to 68.8, according to the median forecast of 66 economists surveyed by Bloomberg News.

Manufacturing in the New York region expanded in April at the fastest rate in a year. The Federal Reserve Bank of New York’s general economic index rose to 21.7 from 17.5 in March. Economists projected 17, based on the median forecast in a Bloomberg News survey.

A separate report showed industrial production increased more than forecast in March, led by a rebound in consumer goods manufacturing. Output rose 0.8 percent, the fifth straight gain, the Federal Reserve said.

Merck gained 1.9 percent, to $34.51. The company will split sales for the arthritis drug Remicade with Johnson Johnson, ending an arbitration dispute that helped drive Merck shares down over the last year.

Charles Schwab advanced 39 cents, to $18.61. The brokerage firm beat estimates, helped by interest revenue and higher fees for managing assets.

Google slumped $47.81, to $530.70. A first-quarter hiring binge and increased marketing led to the biggest jump in operating expenses in three years.

Bank of America fell 31 cents, to $12.82. ’The company reported first-quarter profit excluding some items of 17 cents a share, missing the average analyst estimate by 35 percent.

Higher oil prices and supply disruptions from Japan’s March 11 earthquake prompted Thomas Lee, an equity strategist at JPMorgan Chase, to cut his 2011 profit estimate for the S. P. 500.

Alan M. Gayle, senior investment strategist at RidgeWorth Capital Management in Richmond, Va., said: “The market is unforgiving. Investors have raised their expectations on what constitutes good corporate performance. Yes, the economy is growing. The question is, What is going to convince the market to break into new highs? So far earnings have not been too inspiring.”

Interest rates were lower. The Treasury’s benchmark 10-year note rose 24/32, to 101 25/32, and the yield fell to 3.41 percent from 3.50 percent late Thursday.

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